Sunday, March 22, 2009

The case for charging to read WSJ.Com

First of two parts

Proponents and opponents of paid content often invoke the subscription model at the Wall Street Journal Online as the reason for why their point of view is right.

In the following guest commentary, Bill Grueskin, former managing editor of WSJ.Com, sorts through what he calls “a few common myths” to provide insights into why and how the Journal came to be the most prominent pay site on the web. He left the Journal last summer to become the dean of academic affairs at Columbia University’s Graduate School of Journalism.

By Bill Grueskin

February 2005 was a tough month for those of us who worked at the Wall Street Journal Online, where I was in my fourth year as managing editor. A slew of media experts were telling the world that we were making a mistake of historic proportions by keeping WSJ.Com a paid site.

The criticism usually followed the same route. First, the author would invoke the obligatory paean to the Journal’s historic greatness. That would be followed by a tsk-tsking that the Journal had walled itself off from the “conversation” and thus was en route to irrelevance, followed by obsolescence.

Then, the elixir: Take down the subscription wall, make the site entirely free, and rake in those huge mounds of advertising revenue (time frame for that TBD, but trust us, it’ll come) that will more than compensate for the sudden absence of circulation revenue.

So, author Michael Wolff told a software trade group that February that the Journal was once “one of the truly astounding information franchises.” But then, he invoked ominously, “something happened” in the mid-1990s. “The Journal kind of disappeared. The Journal went out of the conversation as a point of influence…. It seemed to, if not stop existing, at least stop mattering.”

Wolff didn’t drop his argument there. He says he had “spent a lot of time thinking what happened because … it feels something of a puzzle and a little bit of a tragedy.” Applying the same rigorous research to his remedy as to his hypothesis, he determined thus: “The answer is the online thing. I think the fact that the Journal felt that it was powerful enough to charge, and for a long time everyone regarded the Journal's activities online as the ultimate. They had unlocked the puzzle. In fact, I don't think they did. I think they locked themselves into a puzzle.”

Shortly thereafter, Wired columnist Adam Penenberg warned, more in sorrow than in anger, that the Journal “is in danger of becoming irrelevant.” Penenberg applied more stringent standards to reach his conclusion than Wolff, not by quoting anyone from WSJ.Com or citing usage data, but by typing “Enron” and “Wall Street Journal” into Google search and finding only a few results. And so, Penenberg concluded, anyone doing research online (“and there are a lot of us”) were stymied from seeing Journal stories, and the Journal would become an unknown entity to a new generation of web users.

Penenberg made no mention of the fact that WSJ.Com’s subscriber base was growing more than 10% a year, or that overall Web traffic was growing faster, or that WSJ.Com had by then embarked on an aggressive effort to make individual stories freely available to bloggers and other third-party sites.

There was no need to, because he was able to quote blogger J.D. Lasica who was also thinking he might just (but hadn’t yet decided to) drop his WSJ.Com subscription because he was finding it so hard to link to Journal stories.

Four years later, the world is a different place. Major metro papers are closing or whittling back publication of their print editions. Most of their online sites are generating 10% or less of the advertising revenue that the print versions did. And suddenly, the Online Journal is being cited for its prescience and examined for whether it could be a model for struggling news organizations.

Amid all of that, I see a lot of theorizing about why the Journal now attracts nearly 1.1 million subscribers. Some of it came from a discussion last week hosted by the Los Angeles Times which involved two friends of mine, Jeff Jarvis (author and journalism professor) and Alan Mutter, who writes this blog. I asked Alan if I could use his excellent blog to offer another perspective.

There are a few common myths about how the Journal got to where it is.

The most common is that, as Jeff says flatly in the L.A. Times debate, “Its subscription fees are paid on expense accounts.” There. He just states it as if it is, channeling Jane Austen, a truth universally acknowledged. In fact, I recall several years ago that a Dow Jones executive said publicly that a survey of WSJ.Com readers showed less than a third of subscriptions were expensed. Of course, no one knows for sure, because subscribers aren’t required to disclose this to anyone other than the IRS. But the idea that the model is not replicable because of tax laws is unsupported.

Second, Jeff questions, as have others, how much the costs of acquisition, retention and commerce management weigh against online subscription revenues. In fact, churn was never very high at the Online Journal – far less than at most newspapers or magazines – and the marginal costs of new online subscribers were pretty close to zero. Most of the acquisition cost amounted to some cheap advertising and a couple of percentage points to the credit-card company. Otherwise, unlike in the print world, there’s no additional cost in delivery, paper, ink or such.

Third, many people dispute the idea of WSJ as a model because the site provides business information. There is both myth and truth to this. The truth is that, both emotionally and intellectually, readers can more easily find financial value (and justify paying a subscription) for a Heard on the Street stock analysis than a dispatch from the Baghdad bureau. Same goes for paying for someone plunking down $800 for a new refrigerator and deciding to subscribe to Consumer Reports. But if financial sites are such easy marks for subscribers, why are Fortune, BusinessWeek, Forbes, CNNMoney and even Bloomberg all free online?

One day last month, a Columbia Journalism student asked me in class why WSJ.Com had started as a paid site. This moment reminded me of the scene in Annie Hall (about two minutes into this), where Woody Allen produces Marshall McLuhan to refute (OK, I get the irony) a pompous Columbia instructor pontificating about the media.

At the class, I turned to my co-instructor, Peter Kann, former CEO of Dow Jones and the person ultimately responsible for the paid strategy.

“I made the site paid because I was ignorant, “ Kann told the class. “I didn’t know any better. I just thought people should pay for content.”

20 Comments:

I've never had a problem with the WSJ charging for its web site, and I've been a paying customer for a long time. But there's a problem; the content is getting less unique, and, as a result, the time I spend reading the Journal has significantly declined. There's still plenty of coverage of politics and earthquakes elsewhere on the web, so I don't need to pay for it. If the WSJ continues to shift from a business newspaper to a national newspaper, I'm not going to renew my subscription - and I won't be the only one.

Fascinating post, thank you for sharing. I look forward to the next installment.

It would be great to know what percentage of WSJ subscriptions are corporate accounts. I find the one third figure really surprising (my guess would have been higher) and that just makes me even more curious.

I've worked in an information group at a large bank and I don't think expensed subscriptions, the brand or content quality is enough to explain why people will pay for WSJ content online and seemingly nothing else.

I think it has more to do with the fact that WSJ subscribers are a community. It's not something we'd recognize as a 'community' now because it was forged offline.

To create a community everyone needs to be able to see the same content, which means if you're starting now it has to be free to ensure that people can point to it and share it.

The financial community were already all reading the WSJ as the definitive record for the industry before the Internet came along.

They need to know specifically what the WSJ is saying because that is what their boss is reading and what their clients and prospects are reading.

The WSJ "electronic version" has always been a favorite of mine. Since it's centennial, 12 years ago, I've used it I don't know how many time to illustrate that the Internet is not exactly a novelty for some. For Dow Jones, it's old news, they have been selling an electronic version for more than an hundred year.And they even gave away, absolutly free, the paper version more than one hundred years ago:1897The "Ticker" was announced in the Feb. 26 issue of The Wall Street Journal.

1898A morning edition of the Journal was added. Subscribers could now receive both the morning and evening editions of the Journal for $8 a year. Subscribers to the ticker service would receive both free of charge.

Not sure the "Democratic Party Mouthpiece" idea would hold any water if you compared the online success of WSJ to other conservative leaning editorial boards, which I suspect fare just as poorly as everyone else in the market right now. I doubt political viewpoint of opinion pages has anything to do with online revenue.

If pay is such a great model, why aren't more publications doing it? To my knowledge, WSJ, Financial Times, Consumer Reports and maybe a few others have been able to pull it off. Why? because they all have something worth paying for, a monetary value that makes it worthwhile for their subscribers. Also, don't forget, online advertising is all of 14 years old. Certainly it's not good right now, especially for publishers, but history has showed with other technologies that advertising eventually catches up with content. WSJ looks good now, while the major metros are being crushed by debt, but that could change over time. As Pew recently stated, “The problem facing American journalism is not fundamentally an audience problem or a credibility problem. It is a revenue problem — the decoupling of advertising from news.” When it eventually shakes out, through search advertising or geotargeting or something else, the WSJ model might look short-sighted. Meanwhile, where's the stampede among other newspapers to charge for content?

Thanks for a well-reasoned and well-written piece, Bill. The skill and quality of the WSJ brand shone through. I, too, look forward to more.

That said, I must note the significance of your sentence "and the marginal costs of new online subscribers were pretty close to zero". Hidden in this, I believe, lies the salvation of newspaper journalism (read: profitability).

A medium that can distribute its goods to the masses at exceedingly slight expense *can* dominate all other media. But this outcome is not ensured. The critical element in the profitability equation is the willingness of people to pay for the product (and advertisers to pay for access to that audience.)

As yet, the newspaper industry hasn't found the magic balance. It will eventually, but I suspect a lot of blood will be shed before we get there.

I've only subscribed to the WSJ for about 6 months and I love the print and online subscription. I signed up for news of the financial world and the rest of the world from a financial perspective.

I’m not really interested in their sports and entertainment coverage unless it’s financial coverage of the world of sports and entertainment. Someone is making a mistake trying to take it “mainstream”.

They have interesting and unique content now. Don’t dumb it down with fluff we can get anywhere. I will pay for interesting and unique content if that’s the only way I can receive it.

As far as subscriptions go, I deduct other newspapers and magazines too. The WSJ is no different in that respect. (I also deduct business use of my cell phone and internet connection, so what does that have to do with the spread of cell phones and DSL?)

No doubt the WSJ model is an interesting one, but I'd give its example more credence if Dow Jones was more transparent about the numbers. The 1.1 million subscriber number hasn't moved a lot in recent years; the 10-percent growth rates date back a few years. I'd like to know the following before deciding if the model is transferable: - The number and percentage of online subscribers that also get the print edition. - The number and percentage of those online subscribers who are counted individually even though they subscribe through bulk licensing contracts negotiated by their companies. In other words, if my company negotiates a 20-seat access license does DJ count those 20 in their subscription number? If so, what do those numbers look like? - What number and percentage of subscribers work in what could resonable be deemed to be the financial/banking/investment industry? Surely they've done some surveys on that. All these people have professional reasons to subscribe. - Similarly, give us the research data on how many subscribers expense their subscription or otherwise charge it to their employer, as distinct from the company-paid site licenses.

I'm sure DJ will say this data is proprietary, but without it I'm unable to buy in to the argument that just because the WSJ can do it so can others.

Right now, I am willing to continue to pay for electronic access to your paper, but I need access through all my electronics!

As a long time subscriber to the WSJ in all its forms, I am getting very frustrated with the lack of an iphone specific app from you paper.

Recently I had to go without my iphone for a 24 hour period and I was surprised at how much news coverage I take in through that device.

NYT, Bloomberg, AP, and BBC Reader are now my primary news sources which I read several times a day on my iphone. For international news, I read Le Monde, the Telegraph, Swissquote and the Straits Times.

Currently, I am planning on canceling your physical paper when the subscription runs out next month and while I will continue to subscribe online, I find myself checking WSJ.com less and less from my laptop/desktop.

It is fine if you want to charge for your site, I will continue to evaluate if you are worth it. But to survive, you are going to have to offer your information through other conduits.

The world is no longer PC or even blackberry centric. It revolves around individual choice. And many of us currently are choosing the iphone or other devices.

I would subscribe to the journal again, under two conditions. One, it prints the WHOLE paper in a Zimbio type format, ads and all, and is one you can carry with you in your computer. Or.....the current daily web version, that can be saved on the computer or laptop, to be read when convenient, like in a park, in a car, on an airplane, in bed.....yes, just like a real newspaper, without having to deal with all the paper all the time!

Lastly, without the huge distribution cost, and the print paper itself, charge less for it!!

Papers need to seriously re-think what their real niche is. Instead of dabbling in local news and buying (or worse creating) nationally syndicated news / opinion / etc/ content they need to become "intensely local" and syndicate that unique local content out to national outlets.

Possibly they can salvage some of their news staff by focusing laser-like on some specific broader issues -- but ultimately papers need to change their focus from being content aggregators to content syndicators.

Charging for PREMIUM content is not only viable but the right thing to do (so is paying for it). The emphasis, however, is on premium: high-end, reputable, timely content. Not shocking headlines, not user-generated stuff. These too have their places on the Web, but they should not, and I hope, will not replace good investigative reporting, long interviews, essays, short stories... I for one am starting a paid content service and am sure it will work just fine!

I'm glad Peter so freely admits to being ignorant. One thing that is ignored in the legacy of WSJ.com is that it wasn't a case of building it and then deciding to charge for it. We decided we wanted to build a paid subscription site, and then we set about to figure out what it would take to get people to pay for it. The fact is, that we had to incorporate tons of content and functionality to make it useful and valuable to users. They weren't getting just the equivalent of a $200/year print subscription but also a $500/year real-time newswire subscription and probably $200/year in archival access, plus extensive other content that we licensed to include. For that, we initially charged $49/year. Now, I think they're getting about $100/year for this bundle worth nearly $1,000 in other formats. So, those who are thinking they can take their current, thin websites and charge for them should think again.

Good post. I made the decision at Forbes.com to keep it open, fully aware that the Journal was closed, and at the time open seemed the way to go, no question. Forbes seems pretty happy with that model today, just as the Journal is happy it remained paid.

One piece of urban folklore was that the WSJ.com killed a lucrative business in shipping NYC hardcopies to London subscribers who demanded to read the "real thing" and not the Euro edition and that those copies were hundreds of dollars per year in subcription fees which vanished as soon as the site went live. Any truth?

I admit I too felt the Journal was growing irrelevant behind the cost wall a few years ago. At least in terms of the Penenberg (ex-Forbes.com) argument of being unlinkable. However, not so sure anymore.

But one beef -- when will Dow's circ CRM systems get intelligent enough to let me get my WSJ.com subscription carried over to a Kindle? Like Neil says, there's a lot for the money behind the annual fee, but cross format awareness isn't there yet.

Well, I don't have a subscrition, and have no intention of paying good money to listen to some pundits opinion of what's going on in the world when I can go directly to the source via google, anywhere, anytime, any place my research happens to lead my mental wanderings around an issue.

WSJ is not special enough, nor has the perfered corner on common sense.

See, if you're not using the "F" word..(free) I've got options.

Remember, a "well informed citizenry" is essential to the proper functioning of government.

Thus WSJ provides a public service, but the public should not have to pay for informaton that is by all Constitutional rights, provided as a duty to inform.

If you arn't in buisness to fulfil that responsibility to the public, then you might just get a clue as to why the fourth estate is going belly-up due to competition with those who do have this mandate implemented in practice.

I have no sympathy for the plight of WSJ. Nor your dysfunctional marketing strategy.

About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.